TWO THIRDS OF SMES DO NOT FULLY UNDERSTAND CHANGES TO WORKPLACE PENSIONS

TWO THIRDS OF SMES DO NOT FULLY UNDERSTAND CHANGES TO WORKPLACE PENSIONS

A fifth of SMEs are unaware of recent changes to workplace pensions around auto-enrolment

Of those SME business leaders worried about the impact of auto enrolment, almost half said their main concern was the cost of complying

A fifth of SMEs do not know when they will have to comply with auto enrolment

Two thirds (36%) of SMEs do not have a good understanding of changes to workplace pensions introduced under new auto-enrolment rules, according to new research. In a survey of 2,000 SME business leaders, Lloyds TSB Commercial Finance’s Recruitment Finance Division questioned firms about their understanding of the changes to workplace pensions introduced in October 2012.

The new legislation requires employers to enrol their workers into a qualifying workplace pension scheme if they are not already in one. The amount employers and employees pay in will gradually increase, but by October 2018, employees will have to contribute 4% of earnings, and their employer 3%, with a further 1% received in tax relief.

While the changes were introduced from 1 October 2012 for larger companies, they are being brought in gradually over five years. Staging dates will be based on the employer's size, meaning that many small- and medium-sized businesses will start to comply from 2014 onwards*. The National Employment Savings and Trust (NEST) has advised companies that complying with the changes could take up to 18 months.

A fifth of firms unaware of changes to workplace pensions

The research shows that many SMEs are still unaware of new changes requiring employers to help workers save for retirement. Just over a quarter (28%) of SMEs say they have a good understanding of auto-enrolment, meaning almost three quarters (72%) do not fully grasp the changes. Of these, over a third (36%) claimed a basic understanding, and a further 18% said they were aware of the changes. However, almost a fifth (18%) said they were unaware of the changes to workplace pensions.

One in eight SMEs do not have plans in place to cope with auto enrolment

While in many cases auto enrolment staging dates will not start to affect SMEs until 2014, the findings show that almost one in eight (79%) SMEs do not have plans in place to comply with the new legislation. Based on NEST (National Employment Savings Trust) guidelines, many should already have plans in place, or be implementing them over the next year. However, over a third (34%) of small and medium-sized firms do not know when auto-enrolment changes will affect a company of their size. A further 45% said that while they were aware of the deadline for complying, they do not have plans in place yet. Only a fifth (21%) said they were aware of the date and would be ready.

Businesses split on the impact of changes to workplace pensions

When asked whether they were concerned over the impact new pension legislation would have on their business, SMEs were split. Almost half (47%) said they were concerned about the potential impact. Over two fifths (42%) said their worries were due to costs a quarter (27%) due to a lack of clear information about what was required and 11% due to the extra administration and red tape they fear changes will bring. Of those SMEs not concerned with the impact to their business (53%), more than half (55%) said that the changes benefitted staff and were a positive step.

Challenges for recruitment firms

Stuart Talbot, Head of Lloyds TSB Commercial Finance's Recruitment Finance Division, said: “While the phased approach of changes to workplace pensions means that smaller businesses will not have to implement auto enrolment for some months or even years to come, there is still a real lack of awareness amongst SMEs. Firms should be looking at how they can comply with the changes up to eighteen months before their staging date.

“Auto enrolment will bring with it administrative costs to the recruitment industry, less than a year after many have had to comply with the Agency Workers Directive**. While many businesses welcome boosting pension provision, recruiters will have to cope with a higher rate of opt-outs and refunds. This combined with the Real Time Information (RTI) changes to PAYE*** in April 2013 means recruiters should be working with payroll providers to prepare for changes sooner rather than later.

“Since the changes extend to all employers that are responsible for an individual’s PAYE and National Insurance, there are particular challenges for the temporary recruitment industry given the higher turnover of staff.

“Complying with the new legislation will mean additional costs and administration in setting-up schemes, and in on-going management. Larger recruitment agencies that will have to comply sooner may look to pass on costs to their customers. However, this may disadvantage them against smaller firms who do not yet need to comply, and so can place workers at a lower cost.

“The changes may also affect the behaviour of recruits, who may prefer to stay with a larger agency that may either already provide a pension scheme, or will have to soon. This could impact the ability of small firms to attract recruits, since they will not need to contribute towards employees’ pensions for three, four or even five years.”